Where does social Europe stand now?

I spoke last night at a TUC/Foreign Policy Centre roundtable in Cardiff, sponsored by the London office of the European Commission, about the impact of current European developments on the social model. Here’s an edited version of my remarks.

As last weekend showed, it’s not safe to speculate about what’s happening in Europe, because the detail keeps changing – and this month’s plethora of Presidential, Parliamentary, regional and local electionssuggest the primacy of the bond markets may have to give way to the primacy of electorates. However, we do seem to be living between two competing narratives.

On the one hand, an argument that Europe has a serious problem of market confidence and global competitiveness which needs to be addressed by a more or less prolonged period of austerity, and a smaller state. Market confidence requires fiscal conservatism, balanced budgets not just over the business cycle but pretty much permanently. Competitiveness requires labour market flexibility, low levels of taxation, and lower wages.

On the other hand – and this is what I think – the story is one of a lack of demand, public sector deficits driven by the need to tackle the global financial crisis and growing inequality. The solution is growth and redistribution, not austerity. This narrative envisages a programme of public investment in infrastructure rather than cuts, training rather than deregulation and greater regulation and taxation of the banks (and a more redistributive tax and benefit system generally). Unions want wages to rise in countries like Germany to restore domestic demand and rebalance trade with the EU periphery.

Of course, people don’t fall conveniently into these two camps. Growth is the new mantra; most Greek political parties, even those who eject the bailout, favour remaining in the Euro; and everyone agrees to balance the books some time! But electorates who spent the last two years punishing centre left Governments now seem to have turned their fire on the centre right, and that looks to most observers like the crunching of the narrative gears.

So what does this mean for EU employment and social law?

It suggests, I think, that we might be nearer a turning point.

Last week in Romania, the incoming Social Democratic government renegotiated its deal with the IMF to reverse a 25% cut in public sector pay, and the German Finance Minister Schauble – a Christian Democrat, mind – has endorsed the metalworkers’ 6% wage claim, precisely because it would rebalance demand.

In terms of taxation, even the Secretary-General of the OECD has come out in favour of more redistributive tax and benefit systems (along with better education and training and job creation) as a way to create growth through greater equality: a manifesto for social policy that would go further than most European governments at the moment. Despite continuing hostility from the UK – or more accurately from the City of London – the Robin Hood Tax is getting closer and closer to implementation, albeit without the UK benefiting from the resources that will be raised.

On equality, there is a broad consensus that more needs to be done, including the measures in the Queen’s Speech, although we would have preferred them to go further, and there is still a crying need to address child-care and the growing need for elder-care across the EU. Where we’re really not making progress is on income inequality: as the TUC’s new living standards tracker launched today shows, it is the poorest households who are bearing the brunt of price increases.

We do not, however, seem to have reached the end of the road for labour market flexibility – also a feature of the Queen’s Speech and still, as the EU’s employment strategy showed when it was launched a fortnight ago, still a part of the Commission’s thinking despite the absence of evidence that making it easier to sack people or weaken their job security generally does anything to create jobs.

On industrial relations, the Commission’s attempt to regulate through the Monti II proposals looks unlikely to be agreed, which to be honest is probably the right decision – Monti II wouldn’t have worked – but does still leave the imbalance between economic freedoms and fundamental human rights that European Court Judgments have created. If unions and employers are going to play a constructive role in getting Europe out of the crisis its economy is in, unions need to be able to play that role without one hand tied behind our backs.

But overall, I think this month’s election results suggest that the second narrative that I set out may be beginning to win more support.

Written by Owen Tudor

I’ve been the Head of the TUC’s European Union and International Relations Department since 2003 and have worked at the TUC since 1984. I’ve been a member of the Health and Safety Commission, the Civil Justice Council, the Social Security Advis…